Commenting on sky-rocketing house prices in London, Research Director of the Adam Smith Institute, Sam Bowman, said: "London’s house prices are out of control, and the planning system is to blame. The ONS’s headline data, which shows that house prices rose across the UK by 9.1% in the year to February, is extreme enough, but drilling down into the data reveals that prices rose in London by an eye-watering 17.7%.
"This is a disaster – the housing market is out of control, particularly in London, making housing increasingly unaffordable for many people, particularly the poor and young. Rising house prices are nice if you own your own home and are planning on downsizing or want to leave your house to your children, but if you want to get onto the property ladder or move to a larger home, say, to start a family, the price rises revealed by today’s news are devastating. Rents are rising more slowly than house prices but it seems likely that eventually they will catch up, particularly for short-term leases.
"Help to Buy is likely to be one factor in these price rises, because the scheme inflates demand by subsidizing home buying. [1] And if house prices fall, the taxpayer will take the hit. But the biggest cause of these runaway train price rises is the planning system, which makes it inordinately difficult for new construction to take place to allow supply to meet demand. Since 2008, issuance of construction permits for residential buildings has been at a fifty-year low [2].
"Unless the government liberalises planning radically to allow a huge amount of new house construction, house prices are likely to stay high for the foreseeable future
[1] http://www.adamsmith.org/wp-content/uploads/ASIburningdownthehouseWEB.pdf
[2] http://research.stlouisfed.org/fred2/series/ODCNPI03GBA661N
For further comment or to arrange an interview, contact Kate Andrews, Communications Manager, at kate@adamsmith.org / 07584 778 207.
The Adam Smith Institute is an independent libertarian think tank based in London. It advocates liberal public policies to create a richer, freer world.